Banks, Inflation, and Yuck!

The last few days, there has been a lot in the news about Cyprus and their banking system.  Seems their banks were in danger of failing, and the Eurozone was trying to work out a deal.  The Cypriots were balking at the deal, as it would nationalize a percentage of those accounts.  Even the Russians were involved, it seems a high percentage of the biggest accounts were owned by Russian businesses or other elites. 

The Russian President said that this plan was like stealing, and I agree.  Cyprus set themselves up to be Europe's version of the Caymans.  A place where you could park your money, and not have to worry about local taxes.  I believe that is one of the problems here, other governments were jealous that this little island in the Mediterranean was able to get 7 times their GDP in bank deposits.  They also knew that it was primarily Russian money.  Russia over the years has tried to bully Europe, both east and west.  Now they saw their chance.

The ones hurt the worst in this are those Russians that invested their money in Cypriot banks.  Although, the Cypriots are being hit as well.  Imagine how you would feel if the government just took 30% of your checking account (well besides that which the IRS already takes).  Would it move you to deposit more in your bank?  In my opinion this is just the start of the Cypriot crisis.  And as soft socialism seems to be the norm in the world today, I expect this to spiral to depths of possible economic crisis world wide.

Without condemnation to this action forced on the people of Cyprus, we can expect more actions just like this to occur across the world.  Spain, I'm sure is eyeing this, as are the Italians.  Both of those economies are in trouble.  What if the Russians retaliate by cutting off gas to Europe, or raising the price?  Great Britain is already having gas supply problems.  Their people are already paying inflated prices, because supply is not meeting demand.  When people get desperate, can you really predict with certainty what they will do?

What if President Obama sees this as a way to finance more government here?  What if the Federal Reserve prints too much money?  Can we handle inflation?  Remember, Germany prior to World War II experienced massive inflation, and the result was the rise of the Nazis.  Can we be assured that that can't happen here, or elsewhere?  Argentina in the 1980's experienced hyperinflation, it caused collapse of the government and the "dirty war" of the tyrants that replaced them.



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When our government is told, you have to go austere, will the poor who will get hit hardest rise up?  Or the rich, in fear of losing all their life's work to runaway government won't try to flee, or to hide their assets?  At some point that will happen.  See, government finances are not that different to your personal finances.  At some point, no one will lend you money, then you have to cut back.  What if holders of our debt internationally demand payment?  If nothing else, might they dip in to the Social Security Trust Fund, oh wait that was spent in the 1960s.  Will Grandma be eating cat food?  Will her children and grandchildren be there to help?  Or will our seniors just be allowed to die via socialized health care. 

Is our economic problems manageable now?  Who knows, but one thing that is certain is that the longer we wait to make economic changes that bring sanity to our Federal Budget, the more traumatic it will be.  But in our one party government, that is unlikely, and our children will inherit the mess, assuming that it doesn't collapse before then.  The optimist in me says we can work through this, but it is a political solution, more than an economic solution.

Spend Well!